Coca-Cola to Boost Investment in Argentina to $1.2 Billion

The Coca-Cola Company KO has plans to boost its investment in Argentina. The beverage giant intends to invest $1.2 billion in the country within the time period of 2019-2021, as stated by the company in a statement on May 29. Earlier, Coca-Cola had plans to invest $1 billion in the 2016-2018 time frame.

Coca-Cola was one of the companies to initiate a major investment in Argentina after Macri took charge in late 2015, promising business-friendly reforms.

Notably, the company’s performance in Latin America clearly improved in the last reported quarter, particularly in Brazil and Argentina, where modest volume growth was witnessed. In fact, improvement in the key markets like India, Argentina and Brazil was noticed in the second half of 2017 and in first-quarter 2018.

The Latin America segment registered revenues of $998 million in the first quarter of 2018, up 8% from the prior-year quarter. Price/mix growth was 6% in the quarter, primarily driven by strong price/mix in Mexico and the South Latin business unit. Organic revenues grew 6%.

Unit case volume increased 1%, as low to mid-single-digit growth in Brazil, Argentina and Mexico was offset by a decline in both Peru and Chile.

Coca-Cola has a commanding presence in the developing and emerging markets of Latin America, India, Russia and China, courtesy of the growth opportunities that these countries provide. More than half of the company’s revenues are generated outside the United States.

First-Quarter 2018 At a Glance

Coca-Cola started 2018 on a solid note, beating the Zacks Consensus Estimate on both counts in the first quarter. In addition to a notable increase in soda volumes, it also gained from its growing beverage portfolio and restructuring efforts. Organic sales grew 5%, led by price/mix improvement of 1% and concentrate sales growth of 4%. Currency also had a 2% positive impact on revenues. Again, lower SG&A expenses (down 24.2%), along with higher gross margin (up 270 basis points or bps) and operating margin (up 600 bps) helped it come up with better earnings (up 8%).

However, total sales decreased 16% year over year, marking the 12th consecutive quarterly decline in revenues. Although the top line is yet to show sustained improvement, we are encouraged by its strategic efforts to transform its portfolio into a total beverage company, with improved marketing and innovation, focus on driving revenues by improved price/mix, digital focus, and productivity initiatives toward driving margins.

Share Price Performance

Coca-Cola’s shares have lost 7% year to date, comparing favorably with the industry’s 11.3% decline. Earnings estimates for 2018 have moved 0.5% north in the past 60 days, while the same remained stable for 2019. This reflects analysts’ optimism on the stock’s earnings potential.

Making the most of the growth opportunities in the emerging countries, along with improved marketing and innovation will drive its revenues.

Changing demographics and purchasing behavior make it essential for Coca-Cola, and other food as well as beverage giants like PepsiCo PEP, Monster Beverage Corporation MNST and Dr Pepper Snapple Group, Inc. DPS to understand and capitalize on the primary consumer insights that identify growing trends.

The company currently has Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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